My first law of political economics

July 17, 2011

With apologies to Sir Isaac Newton, I call it Letson's First Law of Political Economics. It states that Governmental Economic Power plus Election Politics equals Misallocation of Resources equals Weaker Economy, or GEP + EP = MR = WE. Faced with election loss, the politicians' survival instincts will lead them to make decisions based on political considerations rather than long-term economic considerations. Any deviation from the end result of a Weaker Economy depends on the random chance that political considerations and economic considerations coincide.

A case demonstrating this First Law deals with Chancellor Angela Merkel of Germany and nuclear power. Ms. Merkel has the equivalent of a PhD in physics and has been a stalwart supporter of nuclear power, which provides about 23 percent of Germany's electricity. She has touted Germany's reactors as the safest in the world.

In September 2010 she decided to extend the service lives of Germany's 17 reactors. Then, on March 11, 2011, the earthquake-driven tsunami struck the Japanese nuclear complex at Fukushima. The ripples of this tragedy were felt in Berlin, not physically, but politically.

Ms. Merkel is the leader of the conservative leaning Christian Democrat party. The other significant German parties are the liberal Social Democrats and the smaller conservative Free Democrats and the liberal and environmentally centered Green Party.

Neither the Christian Democrats nor the Social Democrats have been able to win a national legislative majority in recent years. Therefore, creating coalitions is necessary to forming a government. At the present time, Ms. Merkel's Christian Democrats have aligned with the conservative Free Democrats to make her majority.

At the time of the Fukushima tsunami, an important election was soon to be held in the state of Baden-Wurttemberg, which has four nuclear reactors, and which, in the past, has consistently voted for Ms. Merkel's Christian Democrats. Polls indicated that, as a reaction to Fukushima, the Baden-Wurttenberg electorate was becoming concerned with nuclear safety and was shifting in favor of the Green Party, threatening the re-election of the Christian Democrat - Free Democrat coalition.

Abruptly, Ms. Merkel reversed her stand and ordered the immediate shutdown of seven of Germany's older reactors and initiated a policy review that led to a May decision to completely close Germany's nuclear energy industry by 2022. The negative reaction among Christian Democrats to her reversal may have had a strong bearing on the Christian Democrat loss in the Baden-Wurttemberg election.

The point is not who won or lost the election. It is that an adroit, successful and intelligent world leader made and enormously important economic decision against her formerly firmly held principles based on what is universally regarded as a blatant political election consideration.

It is not as if the Japanese tragedy revealed an imminent danger from German reactors. The full investigation of the Fukushima reactor failures is not yet complete.

However, several facts are established: Of the 10 reactors at the area, the meltdown occurred at four and the other six successfully cooled down and presented no problem; the four meltdowns occurred be-cause kitchen table-sized electrical switching units controlling power from auxiliary generators to reactor cooling systems flooded out because they were in poorly protected exterior buildings, not within the fortress-like reactor containment buildings; the failures were entirely in older first generation design reactors and later designs placed the switching units in the containment buildings; there has not been a single fatality nor any radiation sickness from Fukushima; and Germany is hardly vulnerable to major earthquakes or tsunamis.

This is certainly not a case requiring hasty decision-making on an issue with massive economic consequences.

Without belaboring the point, the direct and indirect economic damage to Germany from closing and decommissioning the 17 plants and replacing 23 percent of its electric generation capacity by 2022 will be enormous, costing hundreds of billions of dollars, if such replacement is even attainable. This cost will divert resources from more productive activities.

Additionally, the practical alternatives to nuclear power are environmentally damaging. Wind and solar are economically prohibitive and technically unachievable in this quantity. That leaves oil, coal and natural gas.

Natural gas would increase carbon dioxide emissions and would almost certainly have to come from Russia, a politically dangerous dependency for Germany. Oil and coal will increase emissions and are unlikely to be acceptable to the environmentally sensitive Germans. Under every alternative, the cost of replacing the required generating capacity will be economically depressing.

Thus, GEP + EP = MR = WE.

We expect politicians to respond to the electorate, but it is discouraging when politicians regard their own re-election so important that they take steps and adopt programs they must know will result in long-term harm to their country. On reflection, one might conclude that the United States is not immune to this disease.

Postscript: Interestingly, leaders not faced with immediate election threats have taken a different course. France, Europe's most nuclear dependent country, is increasing its investment in nuclear power production and safety. Japan is not turning its back on nuclear power. China, the U.S., and, reportedly, even Saudi Arabia are continuing expanding nuclear programs.

Letson is an attorney with an office in Warren. He was previously General Counsel of the U.S. Department of Commerce. He was also Vice President and General Counsel of Westinghouse Electric Corporation.